Homework SourseFind the value of P for which the inflows will equal the out
Find the value of P for which the inflows will equal the outflows. Find the effective rate first.
$530
$661
$769
$990
| Rate | 12% | p y c d |
| Year | Outflows | Inflows |
| 0 | -P | |
| 1 | -12P | |
| 2 | -16P | |
| 3 | -24P | |
| 4 | 0 | |
| 5 | -P | $24,000 |
| 6 | -P | $30,000 |
Solution
Year Outflows Inflows PVF@12% Present value of cash outflows Present value of cash outflows
0 -p - 1.000 -p -
1 -12p - 0.893 -10.714p -
2 -16p - 0.797 -12.755p -
3 -24p - 0.712 -17.083p -
4 - - 0.635 - -
5 -p 24,000 0.567 -0.567p 13,618
6 -p 30,000 0.507 -0.507p 15,200
Present value of cash inflows = Present value of cash outflows
15,200+13,618 = p+10.714p+12.755p+17.083p+0.567p+0.507p
28,818 = 42.626p
p = 670
Hence p = $661
